Trust and Ethics in Finance: Culture Must Change in EMEA

The recently published Global Market Sentiment Survey from CFA Institute sought out investors’ views on market sentiment and performance as well as market integrity issues for 2013. The results reveal members’ cautious optimism about the future of the financial markets in 2013, but those are tempered by concerns that the longer-term issues that contributed heavily to the financial and the decline in the integrity of the markets remain unresolved. As a result, much more is required in the way of progress before we see significant improvement in terms of economic health, prosperity, and market integrity.

The survey results state that 98% of CFA Institute members globally acknowledge a current lack of trust in the finance industry. The factors members think have contributed most to the current lack of trust in the financing industry? Over half (56 percent) cited the lack of ethical culture within financial firms. In the European, Middle East, and Africa (EMEA) region, the figure is substantially higher — 63%. Wow! That compares to 53% in the Americas region and 59% in the Asia-Pacific region.

To me this revelation is not unexpected but depressing nonetheless. I must be an eternal optimist as I find it hard to believe that the economic crisis and the damage it has inflicted to investor confidence and market integrity has not shaken things up more than this and had a resultant change on behaviours and cultural values. What’s more, the massive programme of financial services reforms across the European Union appears to have had little impact on moving the needle toward solving this longstanding lack of trust that has shaped current public perceptions and the global financial crisis. The survey results tend to support this, with only 19% of respondents globally feeling that more regulation is needed (as compared to 38% last year). In EMEA, sentiments regarding necessary regulatory and industry actions was mixed: 22% chose improved enforcement of existing laws and regulations, 23% improved corporate governance practices, and 23% improved regulation and oversight of global systemic risk.

The survey also points to action that must be undertaken by individual firms to improve investor trust and confidence. Forty percent of members globally as well as in EMEA stated that the most needed action is for top management and executives to establish and encourage an improved ethical culture. Meanwhile, 26% of members globally believe that adherence to codes and standards is what is most needed. In EMEA, that percentage is even higher — 29%. I say isn’t it time to start “walking the talk”?

It is not just a firm issue — firms are only in existence because of individuals. It therefore cannot just be the responsibility of top management; the cultural values that preside within financial services firms are comprised of individual beliefs too. Things need to change at the individual level, middle management, and top level for any of this to stick.

Claire Fargeot is a former head of Standards and Financial Market Integrity at CFA Institute for the Europe, Middle East, and Africa (EMEA) region. She was responsible for leading CFA Institute efforts in advocacy, policy development, and regulatory outreach in EMEA.

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CFA Institute is the global, not-for-profit association of investment professionals that awards the CFA® and CIPM® designations. We promote the highest ethical standards and offer a range of educational opportunities online and around the world.

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